Sunday, November 07, 2010

I know that this gets boring!

I will start by saying that the Reader must read all the links to this Post, before he will be able to understand the issues involved. All the information stands as sound, derived from a basic, though minor, disagreement as to effects of a monetary policy. The underlying Question for me was mounted by Mark Thoma’s protestation that Inflation can not occur unless there is a solid uptick to Demand. Inflation and monetary policy differ in even greater degree than do Microeconomics and Macroeconomics. The first relies on individual players in the Markets, while the second is a uniform attempt to counter the impact of those individual players. Inflation is even more intensely individually personal; work with me here, participation in the market itself has already established the Demand on the part of the Individual with no group influence. Monetary policy can only grant more Cash–or less–in hand as he approaches the market in question. Now, a market denotes that We have at least two players in competition for the Product available, different only in the amount of Cash they can bring to the market, and their desire to possess the Product. Supplying extra Cash to both will naturally raise the bids made by both–Demand constant–with the Winner being the One willing to spend the most on the Product.

Condition One–We must have Demand–supplied by the creation of the Market. Condition Two–We must have competition, else there is no Market, but only a Product Price. Condition Three–the Price of the Product will rise if there is additional supply of Cash. Too many economists assume that Demand is an All-or-Nothing condition, never accepting the reality that there is always present a lower Demand level, which might not be maximized but still present. This is all We need to establish at this Point. Demand-Competition-and higher Product prices when market participants hold more Cash.

Inflation, in one form or another, is always figured as the difference between averaged Sums between the Present, and some Point in the Past. This highlights an aspect of Inflation, which is acknowledged though often only barely; here We are at the point where the Fed seeks to deny Inflation coming from volatile Sectors–this meaning Ones where there is actually Inflation. Inflation comes from the bottom, not the Top, and only in individual increments of Changes in each and every particular Product. I am saying that individual players in the Markets set the Inflation rate at a very individualized and personal level, having almost nothing to do with monetary policy; except for it perhaps stipulating how much Cash they can bring to the competition. The problem comes in that my old Granddad advised me not to take a knife to a gunfight; he even stipulated that I should load my gun before my opponent loaded his. There can be Inflation even under recessionary conditions, which is the full intent of my Post. lgl

No comments: